Trade Case Puts Apple In Washington's Sights

The U.S. Trade Representative has overturned a ban on the import of the iPhone 4 and the iPad 2.

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Originally published on August 5, 2013 7:08 pm

Apple has been notoriously disinterested in Washington politics. But two decisions coming from the Obama administration in the past few days indicate that Washington is increasingly interested in Apple.

Apple got some good news this weekend when U.S. Trade Representative Michael Froman stepped in and overturned a ban on the import of the iPhone 4 and the iPad 2. The ban was put in place by the U.S. International Trade Commission, which ruled that those Apple products violated standard industry patents held by Samsung.

The U.S. Trade Representative hasn't overturned an ITC decision since 1987. But a presidential administration can throw out a decision if it determines that it's in the best interests of the U.S. economy and American consumers.

At first glance, Froman's decision doesn't seem that significant. According to Carolina Milanesi, an analyst at Gartner, the ban only applied to iPhone 4s and iPad 2s using a particular technology largely available on AT&T and T-Mobile. The iPhone 4 still sells because it's cheaper than getting the latest version, but sales of AT&T iPhone 4s are only a bit over 1 million units a year. Milanesi says the iPad 2 hardly sells at all.

The U.S. Trade Representative may have been looking at the way Samsung was using its patents as a negotiating tactic with Apple. Last year, Samsung lost a big patent case to Apple. Unless it wins on appeal, Samsung is going to pay out hundreds of millions of dollars in damages. However, Samsung has some patents that are necessary for a lot of mobile communication devices like the iPhone 4 and iPad 2. It was those patents that were at issue in the ITC ruling.

In his letter overturning the ITC, Froman said Samsung was engaged in a "patent hold-up." Basically, Samsung was trying to get a very high price on patents that are essential to Apple and others who make wireless devices. To Froman it may have seemed that Samsung was trying to get revenge from Apple over its earlier loss.

In a statement, Apple applauded Froman for "standing up for innovation." But if the company was having a fuzzy moment toward the Obama administration, it didn't last long.

On Friday, the Justice Department handed down some pretty harsh punishment to Apple for its role in price-fixing e-books. Last month, Apple was found guilty by a federal judge of conspiring with publishers to raise the price of e-books. Under the Justice Department's proposed remedy, Apple will now face extra scrutiny when entering into agreements with suppliers of music, movies, TV shows and other content that might raise prices for consumers: Every time Apple signs a new contract, it will have to demonstrate to a DOJ auditor that its action won't raise prices.

Google and Microsoft used to ignore lawmakers in D.C. But both ended up being scrutinized for their business practices by antitrust regulators. Now, these companies no longer sit around waiting on Washington to act.

Last year, Politico reported that Google and Microsoft spent $7 million lobbying Congress. Meanwhile, Apple spent about $500,000 — and that's less than the year before. Over the weekend, the long arm of the Obama administration reached out into the offices in Cupertino. And you have to wonder if Apple isn't thinking it better start reaching back.

Copyright 2013 NPR. To see more, visit http://www.npr.org/.

Transcript

MELISSA BLOCK, HOST:

This is ALL THINGS CONSIDERED from NPR News. I'm Melissa Block.

AUDIE CORNISH, HOST:

I'm Audie Cornish. And it's time now for All Tech Considered.

(SOUNDBITE OF THEME MUSIC)

CORNISH: We start with Apple. It scored a big victory this weekend in its ongoing patent war with Samsung. The Obama administration overturned a ban on imports of the iPhone 4 and the iPad 2 that had been imposed by the U.S. International Trade Commission. The last time an administration overturned an ITC ban was in 1987 under President Ronald Reagan.

LAURA SYDELL, BYLINE: Well, it was imposed because Apple didn't want to pay the price that Samsung was charging on certain patents. And the Obama administration - in fact, any administration - has a right to step in and overturn a decision by the U.S. International Trade Commission, though it is very rare. In this case, Michael Froman, who is the U.S. trade representative, said after consulting with various parties, he decided that the potential harm of this sales ban would be significant to consumers and the U.S. economy.

CORNISH: But we're talking about, you know, the iPhone 4 and the iPad 2, these are older models of these products?

SYDELL: That is very true. They are older models. Not only are we talking about older models, but in this case, it only affects products sold by AT&T. So I spoke with an analyst who said Apple hardly sells any iPad 2s anymore, and it only sells about one million AT&T iPhone 4s. So the appeal of that product, however, is on the lower end - people who can't really afford the most expensive and newest Apple products.

I think the ruling had more to do with a concern that Samsung was using what are essentially industry standard patents to hold Apple hostage. You know, anyone who uses a mobile tablet and connects wirelessly is probably using technology that follows these standard patents. And as you know, Samsung lost a big patent case to Apple last year, and it has to pay out hundreds of millions of dollars in damages. So there's some sense that Samsung may be using these patents to get back at Apple.

CORNISH: Will this affect other companies?

SYDELL: As a matter of fact, it likely will. For example, Dolby Industries and Qualcomm also have these kind of standard patents. And this may affect the price they're going to be able to charge people to use those patents. That could be good for consumers. It could bring down the price of a lot of devices.

CORNISH: So politically, should Apple take today's move as a sign that the Obama administration is on its side?

SYDELL: Ah, Washington giveth and taketh away. Meanwhile, Apple lost an antitrust suit last month over e-Books, and the Justice Department just announced what it would like Apple to do in order to make up for this. And the DOJ is saying: Apple, from now on, when you are negotiating with anyone in your iTunes store - that means TV, film, anything - we want you to report back to us.

So in that sense, I think Apple is probably not so happy with the Obama administration.